Saturday, September 6, 2014

I like your ideas JR, but I think, ironically, the main resistance to
it will be, as it has been in the past, that it doesn’t allow much
wealth to be borrowed from the future.

The fiat “money”, fractional reserve, central banking systems we have
now allow virtually unlimited amounts of money to be borrowed at any
given time. Unlike a sound system like you’re proposing, a central
bank’s ability to control interest rates and create money out of nothing
distorts the price signals that would limit such money creation. In
fact, that system was probably adopted (i.e., The Federal Reserve Act)
precisely for that reason, to allow politicians and “globalist elites”
to fund wars, fund a military, build an empire, control governments,
indenture other countries, steal wealth from the populace through
inflation, cultivate a culture of corruption, destroy the middle class,
create perverse incentives throughout society, create price distortions
by controlling interest rates, and many other generally undesireable
things for the vast majority wanting to live in a sane society.

Now, obviously (or hopefully) if such a criminal system were
suggested as I presented it, most people would reject it. However, it
can be sold in a very devious way that appeals to the greedy and
parasitic minded, which is to admit that though an unbacked monetary
system is unsustainable and may last only about 3 or 4 generations, it
works fabulously for the first two.

That sort of pragmatism is what must be resisted, and I think it will
once again (The Fed is the 3rd central bank of the United States. The
first two were dismantled.)

China, Russia, and the End of the Petrodollar

by John Rubino on October 9, 2012 >> Say you’re an up-and-coming superpower wannabe with dreams of
dominating your neighbors and intimidating everyone else. Your ambition
is understandable; rising nations always join the “great game”, both for
their own enrichment and in defense against other big players.

But if you’re Russia or China, there’s something in your way: The old
superpower, the US, has the world’s reserve currency, which allows it
to run an untouchable military empire basically for free, simply by
creating otherwise-worthless pieces of paper and/or their electronic
equivalent. Russia and China can’t do that, and would see their
currencies and by extension their economies collapse if they tried.

So before they can boot the US military out of Asia and Eastern
Europe, they have to strip the dollar of its dominant role in world
trade, especially of Middle Eastern oil. And that’s exactly what they’re
trying to do. See this excerpt from an excellent longer piece by
Economic Collapse Blog’s Michael Snyder:

They don’t like that the United States has a built-in advantage of
having the reserve currency of the world, and over the past several
years both countries have been busy making international agreements that
seek to chip away at that advantage.

Just the other day, China and Germany agreed to start conducting an
increasing amount of trade with each other in their own currencies.

You would think that a major currency agreement between the 2nd and
4th largest economies on the face of the planet would make headlines all
over the United States.

Instead, the silence in the U.S. media was deafening.

However, the truth is that both Russia and China have been making
deals like this all over the globe in recent years. I detailed 11 more
major agreements like the one that China and Germany just made in this
article: “11 International Agreements That Are Nails In The Coffin Of The Petrodollar”.
A few of the things that will likely happen when the petrodollar dies….
-Oil will cost a lot more.
-Everything will cost a lot more.
-There will be a lot less foreign demand for U.S. government debt.
-Interest rates on U.S. government debt will rise.
-Interest rates on just about everything in the U.S. economy will rise.
So enjoy going to “the dollar store” while you can.
It will turn into the “five and ten dollar store” soon enough.

Some thoughtsSnyder goes on to note that both China and Russia are
accumulating gold, which will protect them from the coming currency
crisis and give the ruble and yuan greater legitimacy in global trade.
In Jim Rickards’ book Currency Wars,
he tells the story of financial war games conducted by the US military,
in which one of the scenarios was a Russian gold backed currency that
challenged the dollar. We’re apparently not far from that plan becoming
feasible.

The US spends a big chunk of its $700 billion a year defense budget
on dominating the Middle East in order to force the trading of oil in
dollars. Let that trade be diversified into several currencies and the
demand for petrodollars goes way down. Central banks and global
corporations will sell part of their dollar holdings, sending the
dollar’s exchange rate into a tailspin. This in turn will make it harder
for the US to finance its military empire/welfare state.

The net result: America becomes Spain, no longer able to simply whip
out the monetary credit card to cover its overspending. We’ll have to
live within our means, cutting maybe $3 trillion a year in government
largesse (including the growth in unfunded entitlements liabilities).

Cuts on this scale can’t be accomplished smoothly, as Europe is
discovering. So in this scenario the coming decade will be even messier
than the last one, with “Occupy” movements shutting down cities and
every election producing incumbent massacres. A combination of higher
prices for necessities and lower wages will demote much of the middle
class to “working poor.”

Meanwhile, China and Russia will reap the rewards of stronger
currencies, and will divide (or share) control over their part of the
world. It’s hard to know who to feel sorrier for, Americans who thought
they could depend on government programs for a middle class lifestyle,
or the neighbors of China and Russia who will see the relatively light
hand of the American empire replaced with something far more atavistic.